The Confidence Bubble Has Popped – Ep. 415

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FAANG’s Took a Big Bite Out of the Market

Another Monday, another big down day for the U.S. stock market, it is turning out to be one hell of a quarter; not all of the declines happening in October. But as I said earlier, it doesn’t have to be in October for the market to crash. Today wasn’t a Black Monday; certainly the percentage decline wasn’t out of the ordinary.  Although the FAANG stocks, in particular, there was a big bite taken out of those stocks, and it wasn’t just the bite that was taken out of the Apple, which was some of the news that precipitated today’s decline. A big down day nonetheless.

NASDAQ Having one of the Worst Quarters Ever

The Dow Jones down just shy of 400 points – 395, or 1.5%. On the lows, we were down better than 500 points.  The Russell 2000 closed down just over 30 points – that’s a 2% point drop.  But the big drop was the NASDAQ – down 219 points, just over 3%, pretty close to the lows of the day. The NASDAQ is now down 12.5% so far this quarter – probably one of the worst quarters ever.

I think the only thing that may slow down the decline is if the Fed skips the December rate hike. Although, even that may not be enough. If the Fed doesn’t hike in December, the markets might get worried that the Fed knows something and that the economy is much weaker and therefore earnings will be much weaker, so, to me, i think if the market’s going to get a stay of execution from the Fed, it’s actually going to have to be a rate cut.

Homebuilder Sentiment Lower Than Expected

There are plenty of other data points that are coming out, both corporate news and news about the overall economy,  In particular, today, that I think weighed heavily on the markets. The first one being the Homebuilder Sentiment for November.  That came out at 10am. So the markets were already trading based on another piece of news which I will get to. Last month, Homebuilder Sentiment’s number was at 68. Now anything above 50 is supposedly O.K. It still means they’re optimistic. And the consensus was for Homebuilder Sentiment to stay at 68. Instead, it plunged all the way down to 60. In fact, the range of forecasts went from a low of 66 to a high of 69. That drop, from what I’ve read, that is bigger than any drop we’ve had during any month of the last bust that led to the 2008 Financial Crisis. We’ve never seen a rate of decline like this. Obviously that scared the market. This is just one of the first sentiment indicators that is giving way. Obviously, home sales are imploding so you might expect builders to be a little bit nervous about this, even though they are still somewhat optimistic. But remember, this whole rally is built on confidence and the confidence is going to start going everywhere, In addition to the Homebuilders, you’re going to see business confidence, particularly small business confidence, which was at a record high.

Apple Now in a Bear Market

But there was some other particularly bad news that came in before the opening bell, and that one was from Apple. They said they will be cutting production because of lower sales. That decision trickles down, effecting a lot of companies who count on those orders from Apple. The price of Apple is down by 4% on the day. But if you now look at the total drop – just over 20% – and that means the way Wall Street scores it, Apple is now in a bear market.

Facebook Led the Market Down

Of course, not just Apple, the FAANG’s in general, the market took a bite out of those guys today. Facebook leading the market down – down another 5.5% on the day. That brings the total decline for this bear market to 40%. In second place is NETFLIX, that was down 5.5%, today so pretty much neck and neck with Facebook. But since its peak, NETFLIX is down 36%. Amazon – down 5% – remember the trillion dollar company? Amazon is down 26%.  Rounding out the FAANG is Google, the strongest of the FAANG’s, down 38% today.

Peter Schiff is an economist, financial broker/dealer, author, frequent guest on national news, and host of the Peter Schiff Show Podcast.



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